What are the main taxes I have to consider?
The rate of tax you will have to pay as a business will fluctuate from year to year, but there are some basics you will need to be aware of in terms of your liability.
You can keep a handle on your tax liability from the start by working out the structure your business will have. Whether you set up as a company, sole trader, partnership of trust will impact on the rate of tax you’ll pay.
For example, companies pay a 30% tax rate, while sole traders pay 46.5% if they earn more than $150,000. Generally, it makes sense for a business to operate, if appropriate, as a sole trader if taxable income is less than $80,000.
“Getting the structure right is critical to ensure businesses have asset protection,” says Paul Clements, principal at business advisory firm Clements Dunne & Bell.
“You need to know your GST position as well as capital gains tax. If you are thinking about exiting, capital gains tax is a big one and start-ups often don’t think it’ll have an impact, when it does.”
Before you get started, you will have to apply for an ABN via the Australian Taxation Office. You will only need to do this once and the ATO will send you activity statements that you need to return by the due dates.
The main tax issues to consider are:
You will be taxed on the total income of your business, minus GST. If you are a sole trader, you will be taxed on your business’ income as well as income from any other employment. Companies are treated differently and have to file their own tax return.
You can claim back certain deductions on expenses incurred in the normal running of a business, such as fuel, not including GST paid. This is self-assessed, but the ATO may ask you to prove your claims, so keep your financial records for at least three years.
If you are GST-registered and you make sales above $50 in value, you have to provide customers with a tax invoice receipt.
Goods and services tax (GST) was introduced by the Howard government in 1998. You must register and collect GST if your annual turnover is $75,000 or more, or $150,000 or more if you’re a non-profit organisation.
You must report and pay GST by the dates on your activity reports. Most small businesses do this quarterly.
The tax you pay on employees depends on whether they are classed as employees or contractors.
You must withhold a proportion of employee pay and send it to the tax office, depending on the employee’s salary and other circumstances. You must also provide them with an annual statement, or group certificate, that outlines the tax that’s been withheld from them.
Contractors have the option of shouldering their own tax liability or have an agreement similar to an employee’s.
Each quarter you must pay a minimum 9% rate of an employee’s ordinary salary as super. Failure to do so will result in fines.
In addition to these considerations, you will also need to consider work cover, fringe benefits tax and fuel tax credits. Details of these obligations can be found on the ATO’s website